India Inc profits crawl as sales stay sluggish

Corporate India’s struggle with subdued revenue and earnings growth persisted in the October-December quarter of 2024-25 (Q3FY25).

The combined net sales (gross interest earnings for lenders) of listed companies grew in single digits for the seventh consecutive quarter, while their combined net profit rose by a single digit for the third straight quarter.

Total net earnings of 3,618 listed companies increased 6.2 per cent year-on-year (Y-o-Y) to approximately Rs 3.47 trillion, while net revenue rose 7 per cent Y-o-Y to about Rs 37.73 trillion in Q3FY25.

With this, listed companies’ combined net profit rose 4.9 per cent Y-o-Y in the first nine months of FY25 (April-December 2024), against 27.4 per cent earnings growth in FY24 (full year).

Their net sales climbed 7.2 per cent Y-o-Y in 9MFY25, a slight improvement from the 6.8 per cent Y-o-Y growth in the entire FY24.

Overall earnings growth was primarily driven by improved margins, as manufacturing firms benefited from lower raw material, energy, and interest costs.

However, banks and non-banking financial companies (NBFCs) saw margin compression due to rising interest expenses outpacing gross interest income.

The profit before interest, depreciation, and taxes margin (PBIDTM), or operating margin, for the entire Business Standard sample expanded 155 basis points Y-o-Y to 28.7 per cent of total income in Q3FY25 -- the highest level in at least 21 quarters.

Similarly, the profit before tax margin (PBTM) rose 76 basis points to 12.7 per cent, the second-highest in 21 quarters, while the net profit margin (PATM) increased by about 10 basis points to 8.9 per cent of total revenue from 8.8 per cent a year earlier.

Earlier, analysts expected operating margins to moderate in the current quarter from recent highs.

However, companies managed to sustain margins despite weak revenue growth through cost optimisation and reductions in discretionary spending.

Other operating expenses — including promotions, advertising, and overheads — declined 1.4 per cent Y-o-Y in Q3FY25, compared with a 9.6 per cent Y-o-Y rise a year earlier and an 11.4 per cent Y-o-Y increase in Q2FY25.

The numbers also suggest efforts to optimise labour costs, as total salary and wages expenses for listed firms grew just 6.2 per cent YoY in Q3FY25 — the slowest in at least 17 quarters.

The banking, financial services, and insurance and stock broking (BFSI) sector outperformed the broader corporate landscape despite contracting net interest margins (NIMs).

BFSI firms’ combined net profit climbed 8.3 per cent YoY to approximately Rs 1.28 trillion in Q3FY25, up from around Rs 1.18 trillion a year ago but down sequentially from Rs 1.32 trillion in Q2FY25.

Their net sales, or gross interest income, increased 9.9 per cent Y-o-Y in Q3FY25 — the slowest pace in 11 quarters — sharply decelerating from 22 per cent Y-o-Y growth in Q3FY24 and 13.6 per cent Y-o-Y growth in Q2FY25.

BFSI firms posted combined gross interest income of approximately Rs 8.19 trillion in Q3FY25, up from Rs 7.45 trillion a year earlier and Rs 8.08 trillion in Q2FY25.

However, lenders’ interest expenses surged 14.5 per cent Y-o-Y, rising faster than gross interest income for the third straight quarter, leading to a decline in net interest margins.

Non-financial companies underperformed. Their combined net profit grew 5 per cent Y-o-Y in Q3FY25 — down from 29.5 per cent Y-o-Y growth in Q3FY24 but a rebound from a 5.6 per cent Y-o-Y decline in Q2FY25.

These firms reported a combined net profit of approximately Rs 2.19 trillion in Q3FY25, up from Rs 2.09 trillion in Q3FY24 and Rs 1.99 trillion in Q2FY25.

The combined net sales of non-BFSI companies rose 6.2 per cent Y-o-Y in Q3FY25, an improvement from 4.2 per cent Y-o-Y growth in Q3FY24 and 4.5 per cent Y-o-Y growth in Q2FY25.

These firms recorded total net sales of about Rs 29.3 trillion in Q3FY25, up from Rs 27.56 trillion a year earlier and Rs 27.99 trillion in the preceding quarter.

Among key sectors, telecom, capital goods & construction, pharmaceuticals, power, and IT services delivered double-digit earnings growth in Q3FY25.

Meanwhile, oil & gas, cement, FMCG, mining & metals, and automobiles lagged, posting little to no earnings growth.

Notably, 58 per cent of total corporate profits in Q3FY25 came from BFSI, oil & gas, and IT services.

Among individual companies, Bharti Airtel, State Bank of India, and Indus Towers were the biggest contributors to earnings growth, accounting for half of the incremental rise in profits in Q3FY25.

Conversely, Indian Oil Corp, ONGC, and Adani Enterprises were the biggest laggards, reporting sharp Y-o-Y declines in net profit for the quarter.